Market Update

US markets have officially entered a bear market, with only 1932 representing a worse start to the year for the key S&P 500 market gauge. A 50/50 portfolio of global equities and global bonds look set for their worst quarter in history.

However, it is worth noting that the above tells us that we are at extremes and hindsight will tell us that a move to cash in early January would have represented a salient New Year’s Resolution so far this year. Last Monday every constituent of the S&P 500 was in negative territory at some point (first time since 1996), and the wider New York Stock Exchange advance/decline ratio was the most negative since 2007. The moves over the weekend in riskier ‘assets’ such as Bitcoin (-70% from record high) also suggest sentiment is now negative in the extreme.

What does history tell us at this juncture?

Firstly, do we know when equities will start to rise significantly again? No, we don’t. But there are some things we do know. We know that there is technical overselling. We know that negative sentiment is extreme (Bull/Bear Spread). And we know that valuations are now below ten-year averages (Global P/Es). We also know that if you had stuck with stocks after the first 25% fall in 1970, 1974, 2001, and 2008 you would have been back in positive territory in between two and five years.

This is all very easy to note ‘ex-post’, and the price of admission to this point has been double digit declines across multi-asset funds so far this year. But the declines experienced by some investors in certain risk assets (single ‘meme’ stocks, cryptocurrencies) do not in general represent the returns experienced by those who engage with a financial advisor.

Markets may have ‘changed’ in the short term, but if a person’s circumstances haven’t it is highly probable that the plan, fund choice etc, at the start of the year continues to be the right one. It is also known that even in a world of rising interest rates; real returns are still negative – and are lower than they were at the start of the year. Inflation is decimating the purchasing power of money held on deposit more than any time this century. This is a crucial point for investors looking to save for the longer term. Whether for pension, child’s education, or a rainy-day fund.

Equity markets are under pressure, inflation remains hot, and interest rate policy continues to heat up. However, in scenarios such as this, those with cool, calm heads will prevail. This can be achieved by people engaging with their advisor, sticking with their financial plan, and recognising that the price volatility experienced whilst investing is the admission price for long term investment returns. 

Protect Your Salary

The main purpose of Income Protection is to provide a regular income if you are unable to work for a period of time due to an accident or illness.

Depending on your employment type and circumstances there are some variations of this policy available. They include Personal Income Protection, Executive Income Protection and Wage Protector. You can claim tax relief on the premiums you pay at your marginal rate of tax. For example, if you are taxed at a 40% tax rate, on a €100 premium you will get €40 tax relief, with the cost to you being €60.

When focusing on Personal Income Protection, we sometimes hear the following comments;

“The state will see me through” – The state illness benefit is currently €208 per week (single persons allowance 2022) and if you are self-employed, you are not entitled to the state illness benefit.

“It won’t happen to me” – The average age of income protection claimants in one particular protection provider in 2021 was age 48, with their youngest claimant aged 22.

“I can rely on my savings” – The average duration of an income protection claim is 5 years meaning a savings pot of up to 5 years’ salary would be needed in order to cover a similar amount.

“I already have specified illness cover” – Income protection is designed to protect your earnings throughout your working life. If at any point you suffer an illness or injury, which stopped you from working, you would still have some form of income until you are medically fit to return to work or you reach the end of your benefit period. This is in contrast to Specified Illness cover which pays a cash lump sum should you suffer one of the illnesses covered by the policy. The most common income protection claims are for psychological issues and orthopaedic conditions. Whilst these conditions can stop you from working, they are unlikely to trigger claims payments from a Specified Illness policy.

Depending on the protection provider, some other benefits can include;

• Partial Benefit - If you return to work earning less than before you may be eligible for a partial payment.

• Hospital Cash Benefit - Daily replacement income if you’re in hospital for more than 7 days during the deferred period.

• Relapse Benefit - Benefit will immediately restart if you return to work after a claim and have a relapse within 6 months.

Whole of Life Insurance… does what is says on the tin!

Whole of Life Cover is a life assurance policy that lasts for a whole lifetime and is not limited to a specific term.

What are the benefits of this type of policy?

If you pass away this policy will provide a cash lump sum payment to your family. This can be used to cover funeral expenses or for settling outstanding debts. In the event of a definite terminal illness diagnosis, the full life cover payment can be made straight away to the policy owner to help with ongoing bills and expenses.

It can also provide tax-efficient inheritance planning cover for your family once it is set up as a ‘Section 72’ life policy. They may be liable for inheritance tax which can be a massive burden at an already difficult time. Inheritance tax is payable to the Revenue Commissioners when the value of the assets inherited is higher than a certain threshold. Depending on the assets being inherited, they may need to borrow money or sell a part of their inheritance in order to cover a potential tax bill.

There are optional benefits that can be chosen when setting up the policy which are dependent on the provider you choose. For example, Royal London provide an option to include a Life Changes feature which means if you stop paying premiums after your policy has been in place for at least 16 years, you can receive a cash amount back or have a guaranteed amount of life cover remaining for the rest of your life.

How do I set up a policy?

Whole of Life cover can be taken out by anyone aged between 18 to 74 years and the cover is for the rest of their life. A financial advisor can help you determine the level of cover you need depending on your circumstances and your dependents. Once the application is accepted, you then pay a set amount on a regular basis which is usually guaranteed never to increase (unless you choose inflation protection/indexation as an additional option).

When you are considering the cover you need, you should take account of

• any other loans and bills

• the income your family will need to live on

• any funeral expenses

• any inheritance tax bill that may arise when you die

A sample quotation for a non-smoking couple aged 43 and 44, for Dual Life Cover of €30,000 each (including the Life Changes option as above, without indexation) works out at €66.51 per month.

(Quote as of May 2022)

Reviewing Your Finances

Do you ever imagine what you would like to do in retirement or when your mortgage is paid off or even to retire earlier than you thought? Or, perhaps you are even just curious as to how your finances look right now?

Some questions and comments I regularly hear when I meet people for a financial review:

>  I know I should save into a pension, but can you explain why it’s better than saving into a savings plan?

>  What will my pension pay me at retirement?

>  I am in my 50’s… is it worth my while starting a pension?

>  Is it true I may be able to drawdown my pension when I am age 50?

>  I am self-employed, can I protect my income if I am unable to work due to illness or injury?

>  I have pensions from a previous employment, can I get access to them on any level or what can I do with them?

>  I think I have mortgage cover, but I do not know what it does, can you explain it to me?

>  Should I pay more towards my mortgage and if so, what change will it have on my term and interest payments?

>  I don’t understand how a life assurance policy payment affects me if my partner dies.

>  What is the difference between Leaving Service Options and Retirement Options?

Should a person wish to avail of this financial planning service, it involves a once-off fee and a simple 3-step process:

1.    You will receive a link to a budget planner where you fill in your personal and financial details. This is a comprehensive budget and will take up to an hour to complete.

2.    You submit the planner and I review and prepare recommendations and advice.

3.    We meet to discuss the results of your budget, your priorities and how you can better manage your money from a savings / pension / life assurance perspective.

Following this, you decide what step to take next. Having control, knowledge and confidence in making financial decisions can provide peace of mind. Either way this process will at the very least be an education to anybody who has no current strategy for retirement or savings needs.

Once again… a time to reflect and not necessarily to act ...

Almost 2 years ago to the day the global financial markets crashed badly, as fears of the COVID brought uncertainty and fear. Nobody knew exactly what was going to happen or how long it was going to be before relative normality would resume. Well, it feels like it was just starting to get to that point and then Mr. Putin decides to invade Ukraine.

The following graphs show a prominent Global Equity (Stocks and Shares) fund during two particularly volatile event periods:

Global Financial Crisis 2007

COVID 2020

I would potentially expect a similar reaction in the markets now and indeed we are already seeing it as I type this (the day Russia invaded Ukraine). While the circumstances have changed, the same concerns apply, how bad is it going to get? How long might it last?

I wouldn’t care to predict anything at this time, nor would I cling to a mantra that “past performance would indicate a rebound”. That said, the reality is that past performance has usually shown this to be the case.

Leaving money on deposit is not exactly a perfect solution either as inflation looks to be climbing dramatically in some cases (energy prices). So, while your €100 may remain €100 in your bank account, its spending power could diminish.

In the past, the best course of action has been to “take no action” when it comes to investments when you see how the markets usually recover. This is not to say that this strategy suits all investors/clients. In some cases, it is important to take stock of what you have now and to take corrective actions to preserve your savings/pensions even when the value has fallen.

Specified Illness Cover… what is it and who can benefit?

We can often take our health for granted and may never give a second thought to what would happen to us, or our family should we suffer an illness. An unexpected serious illness can add emotional and financial worry at a tough time. Should you be unable to work due to an illness or even through the recovery stage, it would be reassuring to know that a Specified Illness policy will at the least ease the financial worry.

How does it work?

This type of cover pays you a lump sum amount if you are diagnosed with one of the specified illnesses covered on your plan. Once accepted, the cost of your cover will never increase during the term of your plan unless you choose to index your benefits or premiums or apply to increase your level of cover.

Once a claim has been successful, the lump sum can be used however you like to help you and your family cope financially during a difficult time. Some examples may include;

• Pay for medical treatment and expenses.

• Help with your mortgage or other loans or bills.

• Invest to provide a regular income.

• Make any necessary alterations to your home.

Children’s Cover

On most policies, children aged between 6 months and 18 years (21 years for children in full time education) of the life insured person are automatically covered for up to 50% of the Specified Illness Benefit at the time of diagnosis, meaning if your child is diagnosed with or undergoes surgery for one of the specified illnesses covered, you will receive up to a maximum of €25,000.

Additional Optional Benefits

You can include a ‘conversion option’ to let you extend your cover at any time without having to provide evidence of your health.

Advance payment of benefit for heart surgery – Royal London provides an upfront payment of up to €20,000 if you need specific heart-related surgery in the future.

New Ireland will allow you to add benefits to protect yourself financially in the short-term in the event of:

·         A stay in hospital (for more than 3 nights)

·         An accident which leaves you unable to work (for more than 2 weeks)

·         Suffering one of a number of broken bones

·         Undergoing one of a number of surgeries listed

Aviva have two additional benefits automatically included at no extra cost called Best Doctors® Second Medical Opinion service and Aviva Family Care (a counselling & psychotherapy service provided by Teladoc Health).

Life Assurance Cover…following Covid-19

If you’ve had COVID-19 and now want to set up a life assurance policy, you may be wondering where to start. We previously discussed the impact of Covid-19 on various protection plans and as the pandemic has evolved over the past two years, so too have the requirements for applications.

Will COVID-19 impact my ability to get life assurance?

If you had COVID-19 and did not require an in-patient hospital stay, are now back at work, and you have fully recovered with no other significant underlying condition, your application should proceed as normal. In general, people are not refused life assurance for this reason.

After having COVID-19, is there a waiting period before I can get life assurance?

The general rule in life assurance providers is that once you are one-month post-COVID, and fully recovered, you can apply as normal.

Assuming your application is accepted at standard rates, you will be quoted the normal premium rate for life assurance. Note, this one-month post-COVID period applies to applications for mortgage protection life cover as well.

Has COVID-19 altered the life insurance market?

Sadly, statistics have shown that COVID-19 deaths occur more often in elderly people, and people who have significant underlying health issues or conditions. Due to this information, the insurance market in Ireland and in the UK in general is more limited when offering cover to those with significant underlying medical conditions.

This means that a very small number of people who would have been eligible for life assurance before the pandemic are temporarily unavailable to access this cover, regardless of whether they have had COVID-19 or not. That said, most providers look at every application individually, taking all details into account, to see if it’s possible to go ahead with life cover.

What happens if I have a serious underlying condition, but I’m also fully vaccinated against COVID-19?

If you have a significant underlying condition but are fully vaccinated, this is considered a positive factor when applying for life assurance.

Does my occupation make a difference to my life assurance application?

Applications for life assurance cover are treated equally, irrespective of an individual’s job or career. For example, health care or frontline workers are not treated any differently due to COVID-19.

If a person with a life assurance policy has an adverse reaction to a COVID-19 vaccine and death occurs as a result, will the policy sum be paid to the beneficiaries?

Yes, they will be covered under their life policy should this occur.